Tax Credit May Make Carbon Capture Economic

The Internal Revenue Service recently issued guidance to help developers take advantage of tax credits for carbon capture and sequestration systems, which some developers say may make capturing carbon economic. Carbon capture and sequestration technology removes carbon from the combustion of fossil fuels, captures it, and sequesters it underground. Some carbon dioxide is sold to companies for use in enhanced oil recovery and in other processes. Carbon capture systems also cut emissions at industrial sites like ethanol plants or cement factories. An additional advantage is that these systems can remove emissions from existing facilities

The tax incentive passed by Congress in 2018 provides $50 for every metric ton of carbon dioxide that is sequestered, or $35 a ton for producing oil with the captured carbon. While Congress passed the credit in 2018, it was not until last month that the IRS published detailed rules on tax incentives for the projects that enabled the industry to obtain financing. Additionally, IRS’s proposed regulations address other issues, including: procedures to determine adequate security measures for the geological storage of qualified carbon oxide, exceptions to the general rule for determining who the credit is attributable to, procedures for a taxpayer to make an election to allow third-party taxpayers to claim the credit, standards for measuring utilization of qualified carbon oxide, and rules for credit recapture.

Many developers are seeing this as a way to create jobs in a time when the coronavirus pandemic caused a large amount of unemployment. For example, in Pennsylvania where there is a high concentration of coal-fired power plants and industrial facilities that include cement and iron and steel manufacturers, pulp and paper mills, refineries and petrochemical plants, if developers were to take advantage of incentives for carbon capture storage and utilization projects created in Section 45Q of the U.S. tax code, between 1,800 to over 3,000 construction jobs could be created.

New Mexico’s San Juan Power Plant

Enchant Energy Corp. is preparing to put in a carbon-capture system at a coal-fired power plant near Farmington, New Mexico that may help save 450 jobs at the 847-megawatt San Juan power plant and the nearby mine that feeds it. The facility is slated to close in 2022 because its majority owner, the local utility, claims it is no longer economical to operate and cannot meet an emission cap established last year.

With the tax credit, Enchant Energy can keep the plant operating. The company will pay $1 for the plant, install a $1.3 billion carbon-capture system, reducing carbon dioxide emissions by as much as 90 percent, and sell the carbon dioxide. The company wants to complete financing this year and start construction in the second quarter of 2021.

Other U.S. Projects

Petra Nova is a $1 billion joint venture of NRG Energy Inc. and JX Nippon Oil & Gas Exploration Corp. located outside Houston. It went into service at the end of 2016, capturing carbon dioxide from burning coal and delivering the carbon dioxide for oil production. Occidental, an oil company, is co-developing a system at a White Energy Co. ethanol plant in Texas.

According to the Carbon Capture Coalition, 13 commercial systems are currently operating in the United States and 30 more are in development. Developers include Occidental Petroleum Corp. and Starwood Energy Group Global.

Canadian Projects

Canada’s SaskPower’s Boundary Dam Unit 3 power plant, which went online in 2014, was the world’s first commercial-scale carbon capture, utilization, and storage (CCUS) power plant.

Canada’s newest commercial-scale CCUS technology project is the $1.2-billion Alberta Carbon Trunk Line, which went on line the first week of June. The 240-kilometer pipeline transports carbon dioxide captured at two industrial facilities to oil fields in Clive, Alberta, for enhanced oil recovery. The system is expected to capture 1.8 megatons of carbon dioxide annually and eventually capture up to 15 megatons per year.

Europe’s Carbon Capture Project

Last month, oil companies Royal Dutch Shell Plc, Total SA and Equinor ASA said they would go ahead with the transport and storage portion of Norway’s plan for a full-scale carbon-capture chain, which is expected to cost 6.9 billion kroner ($744 million) in the first phase. The government is expected to shoulder most of the investment if Parliament approves the project.

DOE Expected to Supply Financial Help

The U.S. Department of Energy is expected to provide $76 million in funding for design development and front-end engineering design studies under its Coal FIRST systems program. In 2019, it awarded $55.4 million in federal funding for cost-shared research and development and front-end engineering design studies at nine coal or natural gas plants, and up to $20 million for four regional research and development initiatives.

Conclusion

Carbon capture, utilization, and storage technology may now make headway given that the IRS has provided the guidance developers need to utilize the tax credit passed by Congress in 2018 and obtain necessary financing. CCUS is expected to be a key technology for the future that can ensure power reliability, affordability, and environmental sustainability. Fossil fuels are not transition fuels and are needed to ensure operation of our power system 24/7, unlike renewable fuels such as wind and solar that only perform when the wind is blowing and the sun is shining.  If the United States is able to make use of its coal resources, which are by far the largest in the world, the benefits to communities would be enormous.

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